Customer Lifetime Value Calculator

How do you calculate customer lifetime value?

Customer lifetime value is the total gross profit a business expects to earn from a customer over the entire length of their relationship. It matters because it sets a rational ceiling on how much to spend acquiring and retaining customers. If your lifetime value is low relative to what you spend to acquire customers, no amount of volume will make the unit economics work. This calculator builds the estimate from monthly revenue, gross margin, churn rate, and acquisition cost.

Monthly revenue per customer

Enter the average revenue a single customer generates each month. For subscription businesses this is typically the monthly plan value. For service businesses with irregular billing, use the average monthly spend across your customer base, or annualize and divide by 12. The monthly figure is the foundation of the calculation because it scales with lifetime duration.

Gross margin

The gross margin percentage represents how much of each dollar of revenue is left after paying the direct costs of delivering the product or service. A software business may have very high gross margins; a field service or product-based business will have lower ones. Margins vary significantly by industry, and using your actual margin rather than an industry average produces a more meaningful lifetime value figure for your business.

Monthly churn rate

Churn is the percentage of customers who stop doing business with you each month. It is the single most powerful lever on lifetime value because it determines expected customer lifespan. A 3 percent monthly churn implies an average customer relationship of roughly 33 months; a 10 percent churn implies about 10 months. Small reductions in churn compound dramatically over time and increase lifetime value more than most other improvements a business can make.

Customer acquisition cost

Enter what you spend on average to acquire one customer, including all marketing and sales expenses attributed to new customer acquisition divided by the number of new customers those expenses produce over the same period. The calculator subtracts this from gross profit lifetime value to show the net lifetime value after acquisition costs. A common benchmark used in subscription businesses is to evaluate whether lifetime value substantially exceeds acquisition cost, but the right ratio varies by business model and growth stage.

How to use this calculator

Enter your monthly revenue per customer, gross margin, churn rate, and acquisition cost. The result shows expected customer lifetime in months, gross profit lifetime value, and net lifetime value after acquisition cost. The LTV:CAC ratio shown in the note is a useful signal but should be compared against your own margins and payback expectations rather than treated as a universal target. Everything is calculated in your browser; nothing you enter is sent to us or stored on a server.

Frequently asked questions

What is a good LTV:CAC ratio?

Many subscription and SaaS businesses use an LTV:CAC ratio as a health indicator, but what constitutes a good ratio depends on your margins, the length of your payback period, and your growth rate. A ratio that works well for a high-margin software business may look very different for a service business with higher direct costs. Track the trend in your own ratio over time rather than comparing against a single external benchmark.

How can I improve customer lifetime value?

The two most direct levers are reducing churn and increasing average revenue per customer. Reducing churn extends the expected lifetime, which multiplies the value of everything a customer spends. Increasing revenue per customer through additional products, services, or pricing can raise both the monthly figure and the margin percentage. Improving the initial customer experience tends to affect both because satisfied customers stay longer and buy more.

Does this calculator account for discounting future revenue?

No. This calculator uses an undiscounted lifetime value model, which adds up expected monthly gross profit without applying a discount rate for the time value of money. Discounted LTV models exist and produce a more conservative figure, particularly for long customer lifespans. For most practical planning purposes, the undiscounted model is a reasonable starting point.

Important

This tool provides estimates and general-purpose documents, not financial, tax, legal, or professional advice. Verify important results before relying on them.

Support

Problem with this tool or suggestions for improvement? Please email support@niftyutilities.com.